A. Financing We recognize that any financing provision must not only provide funds for recession benefits (50% under H.R. 14705) but also solve the recurring problem of providing adequate funds relating to the administration of unemployment insurance for both the federal and state governments and related employment service activities. At this time it is pointed out that the federal unemployment compensation tax is a flat tax which every employer must pay and that it is not experience rated. The source of funds to pay normal unemployment insurance benefits are funded entirely by the states from the proceeds of their unemployment insurance taxes. State taxes are experience rated and vary from employer to employer. To ease the administrative financing pinch this year legislation was enacted (H.R. 9951-PL 91-53) by accelerating the collection of the FUTA tax from 1970 through 1972. H.R. 14705 has provided that there will be an increase in the tax rate of 0.1% (effective 1970 and thereafter) and in the taxable wage base from $3000 to $4200 effective January 1, 1970. The Secretary of Labor, however, proposes to drop the 0.1% tax increase but to increase the taxable wage base to $4800 for 1972-1974 and to $6000 thereafter. A review of the Secretary's testimony before this Committee does not appear to present any argument that H.R. 14705 would be insufficient as a revenue producer. The fact that it will bring in sufficient revenue is well documented in the Report of the House Ways and Means Committee on H.R. 14705, particularly on pages 32-37. The basis for the change proposed by the Secretary, as we read his testimony, is that the increase in the taxable wage base to $4800 and to $6000 is necessary to eliminate tax inequities among employers. This we do not comprehend because it costs no more to administer unemployment benefit payments and to provide job referrals to a high-paid claimant than it does to an employee for a low-paid industry. Further, it appears to us that the latter payment services would be more likely to be costlier because of the recent trends in training programs to upgrade such employees. The increase in the tax base would be disproportionate to the increase in the tax rate and therefore would work to the disadvantage of firms in industry that pay high wages and give stable employment. These firms are now paying more unemployment taxes than their own experience requires and are, to this extent, subsidizing their competitors and/or those that are less stable. An indication of how much the increase in the tax base would increase taxable payrolls has been calculated in New York by size of firm and on an increase in the tax base from $3000 to $4800. ("Impact of a Tax Base Increase under the New York State Unemployment Insurance Law", prepared by the New York State Department of Labor, Division of Employment, August, 1967). This table follows: PERCENT INCREASE IN TAXABLE PAYROLLS, $4,800 TAX BASE, BY SIZE OF FIRM [Size based on annual taxable payrolls] The percentages would be increased substantially in the above table if based upon taxable payrolls of $6,000—positive accounts listed in the above table are those employers who pay their own unemployment insurance costs and in addition are subsidizing the unemployment of others. Negative account employers are those whose taxes are less than the benefits paid to their former employees. We fear that if the Secretary's proposal is adopted, there will be a surplus of funds after 1972. Perhaps it is the desire of the Secretary to have excess funds to cover the broader activities and additional responsibilities which have been placed on the Employment Service and now come out of general revenues. The "broader activities" or additional responsibilities placed upon the employment service not oriented to unemployment insurance and paid out of funds collected through the Federal Unemployment Tax appear in the testimony of representatives of the Interstate Conference of Employment Security Agencies (State Administrators) at a public hearing on March 15-16, 1966, before the House Committee on Ways and Means for the purpose of receiving further recommendations on H.R. 8282. On pages 80 to 86 (Vol. 6 of the Public Hearing before the Committee on Ways and Means on H.R. 8282) reporting such testimony, it is shown that the federal unemployment insurance tax pays all or part of administrative expenses for additional responsibilities placed on the Employment Service for these programs: 1. Youth opportunity centers and youth programs 2. Counseling selective service rejectees 3. Counseling military service retirees 5. Neighborhood youth corps 6. Job Corps program (one-third of cost) 7. Immigration Act, Public Law 414 8. UCFE (unemployment insurance for separated federal employees) and UCX (unemployment insurance for ex-servicemen)—these federal programs are related to unemployment insurance but it appears to us that it is unfair for employers to pay for their administrative cost. (State Administrators recommended that administrative cost be paid out of general revenues (Hearing before House Ways and Means Committee. Part 6, page 27.)) We recommend that the financing provisions in H.R. 14705 be kept because it provides adequate financing of the federal-state unemployment insurance system for administrative cost and for 50% of state recession benefits and that any excess taxes provided by that bill will be returned to the states as they have in past. B. Coverage of agricultural labor The enactment of a provision covering agricultural labor could adversely affect all New York employers because of the New York Unemployment Insurance Law financing provisions. Under such provisions there are two tax rates. One is the normal tax rate which varies from employer to employer because it is based upon the experience rating formula in the law. The other is the subsidiary, or socialized, tax which is the same for all employers and one of its purposes is to help keep the state unemployment insurance fund in balance as nearly as possible. This subsidiary tax depends upon the balance of the General Account. This account, part of the state's unemployment insurance fund, is primarily a device for recording benefit charges that exceed an individual employer's tax payments by more than 2% of his payroll during the payroll year preceding the computation date. It serves as a barometer to signal the occasion for a subsidiary tax to be imposed on all employers. Credits to the General Account include the subsidiary tax, interest earned on the fund, balances of employers' accounts which have lapsed, taxes paid late, and certain monies credited to the unemployment insurance fund by the United States Government. Charges include negative overdrafts on individual employer accounts caused by benefit withdrawals that exceed tax payments. All employers are required to pay a subsidiary tax depending on the balance of the General Account in addition to normal taxes. On December 31 of each year the General Account is examined. If the balance of the General Account is less than $120,000,000 a subsidiary contribution ranging from 0.1% to 1%, depending on the balance in the account, is required on wages paid in the following calendar year. Unlike normal taxes, subsidiary taxes are not credited to individual employer accounts but to the general account. Farmers are engaged in a seasonal industry and many of them, if this provision were enacted, would not pay enough in taxes to pay benefits to their employees. In New York, if this happens, the General Account would have a greater drain on it because of these additional charges. Farmers who have negative accounts could pay up to the maximum of 3.2% normal tax plus a subsidiary or additional tax ranging from zero to 1% on their taxable payrolls. Other states, not using the device of the General Account and the subsidiary tax, could have an unwarranted net loss to the unemployment insurance funds. New York legislation enacted in 1969 permits the farm employer to cover such services on a voluntary basis. Previously, such services could not be covered even on a voluntary basis. The employer who elects coverage must remain in the unemployment insurance system for the balance of the calendar year of his entry. Thereafter, he can leave the system at any time by giving notice to the Division of Employment. Coverage will cease at the end of the calendar quarter in which his notice is received. It is hoped that the experience gained by the 1969 law would provide information if compulsory coverage of farmers is feasible and if so, the best method to provide such coverage, such as benefit rights, taxes on farmers, and the impact on the state unemployment insurance fund and its economy. We understand that several other states are studying this question, and experimentation is necessary before federal mandated coverage of farmers is enacted into law. Coverage of seasonal farm workers presents the principal problem. Among those working only in New York State, some are employed only for short periods and would not qualify for benefits. This might be true also in other states. Employers of such workers would have to pay unemployment insurance taxes without any benefits accruing to their workers. The migrant farm workers might also present a problem. It appears to us further that before coverage of agricultural workers is enacted into the law, more serious studies should be made in all the states to determine the effect of such coverage. CONCLUSION When the Social Security Act first was enacted in 1935, it left full responsibility and discretion with the states to determine eligibility conditions, benefit amounts, and duration of benefits. Committee reports of both the Senate and the House in connection with the original Social Security Act contain the following statement: "Except for a few standards which are necessary to render certain that the State unemployment compensation laws are genuine unemployment compensation acts and not merely relief measures, the States are left free to set up any unemployment compensation system they wish, without dictation from Washington. Likewise, the States may determine their own compensation rates, waiting periods, and maximum duration of benefits. Such latitude is very essential because the rate of unemployment varies greatly in different States, being twice as great in some States as in others." The provisions of H.R. 14705 could fundamentally change the original concept of state responsibility in unemployment insurance. We urge that this Committee not change such concept but enact H.R. 14705 without amendment. Senator ANDERSON. Mr. Vavoulis. STATEMENT OF GEORGE J. VAVOULIS, PRESIDENT, INTERSTATE CONFERENCE OF EMPLOYMENT SECURITY AGENCIES, ST. PAUL, MINN.; ACCOMPANIED BY CURTIS HARDING, ADMINISTRATOR OF THE UTAH DEPARTMENT OF EMPLOYMENT SECURITY; AND HENRY ROTHELL, ASSOCIATE ADMINISTRATOR OF THE TEXAS EMPLOYMENT COMMISSION Mr. VAVOULIS. Mr. Chairman, members of the committee, my name is George J. Vavoulis. I am commissioner of the Minnesota Department of Manpower Services, and president of the Interstate Conference of Employment Security Agencies. It is in this latter capacity that I appear here today. I would like to repeat that I am here as president of the Interstate Conference of Employment Security Agencies. The Interstate Conference of Employment Security Agencies is an organization composed of the chief administrative officials of the State employment security agencies in the 50 States, the District of Columbia, Puerto Rico, and the Virgin Islands. These agencies are responsible for the unemployment compensation as well as the employment service programs in their respective States. Accompanying me today are Mr. Curtis Harding, administrator of the Utah Department of Employment Security, a past president of the ICESA; and Mr. Henry Rothell, associate administrator of the Texas Employment Commission. Mr. Rothell is also chairman of the conference legislative committee. These gentlemen have considerable knowledge in the field of unemployment insurance and are quite familiar with the provisions of H.R. 14705. They will assist me in answering any questions the committee may have. The conference recognizes the need for improvement of the Federal legislation pertaining to unemployment insurance and offers its continuing services to your committee. When the administration's unemployment insurance bill was being considered by the House Ways and Means Committee, representatives of the interstate conference were privileged to appear and make recommendations with respect to changes in the administration's bill. Some of the recommendations of our representatives were incorporated in H.R. 14705, particularly with respect to the coverage provisions and the Federal-State extended benefit program for periods of recession. Following passage of H.R. 14705 on November 13, 1969, the executive committee of the interstate conference directed that the various State agencies be polled to determine their approval or disapproval of the bill. The results of the State poll show that the State employment security agencies voted to approve H.R. 14705 as passed by the House by a heavy majority. The results of the poll were as follows: 42 States (80 percent) voted in favor of the bill, four voted not in favor, and six did not vote. The position of the interstate conference is that H.R. 14705 very substantially improves the Federal unemployment insurance law. As pointed out by the Honorable Senator Long in his press release giving notice of this hearing, the three principal features of the bill include: (1) The extension of Federal unemployment insurance coverage to an additional 42 million jobs, (2) The establishment of a new permanent extended compensation program with costs financed equally by the Federal Government and the States, and (3) The increase in the net Federal tax from four-tenths to fivetenths of covered payrolls on January 1, 1970, and an increase in the taxable wage base for the Federal tax from $3,000 to $4,200 on January 1, 1972. The conference strongly supports the extension of unemployment insurance coverage to the additional 42 million workers. We feel these workers are entitled to protection under the law just as much as workers presently included. We also strongly advocate that additional unemployment benefits be available to workers during recession periods. Experience has shown the economic and personal value of special consideration to the unemployed during periods of recession. It is our considered opinion that the provisions in H.R. 14705 are a substantial improvement over those originally contained in the administration's proposal. A poll of State agencies has shown the conference membership strongly supports the financing provisions contained in the bill under consideration. The conference position developed at its annual meeting with respect to the administration's unemployment compensation bill stated that there is a substantial need for additional financing of the program and recommended the taxable wage base be raised to $4,200 for 1972 and that the tax rate be increased from 3.1 percent to 3.2 percent effective January 1, 1972. Thirty-one States (60 percent) representing over 66 percent of the Nation's covered workers and almost 61 percent of covered employers voted in favor of the increased wage base and tax rates. Twelve States having 20 percent of the covered workers and 23 percent of covered employers were opposed to the position while nine of the States representing 13 percent of the workers and 16 percent of the employers abstained from voting. In summary, I would like to repeat that based upon our findings a vast majority of the States support H.R. 14705 as passed by the House of Representatives and, therefore, we urge that this bill be reported favorably by the committee. I have attached to my statement, of which I believe you all have a copy, the results of a poll of the States. The attachment indicates the number of States voting for the bill, those voting against, and those not voting, as well as the percent of total covered workers and the percent of total covered employers in each category. (The attachment referred to follows:) On December 23, 1969 the State employment security agencies were polled to determine their approval or disapproval of H.R. 14705 as passed by the House of Representatives on November 13, 1969. The State employment security agencies approved H.R. 14705 as passed by the House of Representatives on November 13, 1969 by a vote of 42 in favor, 4 not in favor, and 6 not voting. The tabulated results of the poll are as follows: 1 Total workers covered under State unemployment insurance laws as of June 1969. Mr. VAVOULIS. In conclusion, gentlemen, I wish to thank you for the privilege of appearing before your committee. Senator ANDERSON. Any questions? Senator BENNETT. No questions. Mr. Chairman, I would like to take this opportunity to welcome back before the committee my friend Curt Harding, from Utah, who has appeared before us many times before and whom I consider to be one of the most knowledgeable men in this field of unemployment compensation. Senator ANDERSON. Thank you very much. We appreciate your being here very much. Mrs. Beiderman. STATEMENT OF MRS. GERALDINE M. BEIDEMAN, CALIFORNIA EMPLOYERS' RESEARCH COUNCIL, LOS ANGELES Mrs. BEIDEMAN. My name is Geraldine M. Beideman. I would like to request that the prepared statement be inserted in the record and then I will speak informally to it and very briefly. |